Australian energy market in an interesting place right now. Political leaders and industry experts are all over the board with their claims about the future of coal and gas. The Australian Energy Regulator’s recent State of the Energy Market report highlights that the claims made by different sides of the political spectrum regarding energy prices cannot both be true. Shadow Energy Minister Dan Tehan recently expressed alarm at the energy situation. In parallel, climate experts Tony Wood and Dr. Niranjika Wijesooriya paint a stark picture of the global challenges ahead for the energy sector.
In light of Russia’s invasion of Ukraine, adverse weather conditions, and natural disasters, Wood argues that these factors have significantly impacted electricity costs over recent years. The report shows that nearly all new investment in grid-scale power generation since 2012 has been directed toward renewables. At the same time, a number of existing coal plants in Australia have announced plans to retire over the next ten years.
Economic Pressures on Coal Power
The Australian Energy Regulator’s own research shows that coal power is under continued, growing economic strain. As negative spot prices persist over a longer duration, it becomes increasingly difficult for coal plants to be able to operate in a profitable manner. Wood remarked on this reality, stating,
“Prolonged periods of negative spot prices, and potentially having to shut down during the day, makes it harder for coal plants to operate profitably.”
This situation places additional strain on coal stations, many of which are already grappling with the uncertainty created by market shifts towards renewable energy. The point the regulator was making was that on either side of politics, they can tell you they can lower prices—that’s what Wood said in bold terms.
“We’ve got a situation where one side of politics is saying do what we say and prices will go down, the other side says do what we say and prices will go down. It’s a simple fact that both can’t be true; the reality is most likely neither is true.”
The rapidly approaching retirement of over a dozen small, old, frequent-flying coal stations only increases the urgency of meeting these challenges. Tehan is right that the Liberal Party intends to squeeze wasted energy out of our old coal stations. They want to provide a reliable energy supply for as long as possible. This strategy based on short-term patching has left industry watchdogs questioning the continued viability of the long-term approach of leaning on old infrastructure.
Shifting Political Strategies
The Liberal Party’s recent energy proposals have sparked debate among stakeholders. The incumbent NSW government has recently announced an extension of the Eraring plant until 2027. This decision has been hotly condemned because of the heavy requirement for taxpayer dollars, reaching into the hundreds of millions. Many critics believe that these types of investments will not pay off in the long run with savings on energy costs.
Calls for a reset continue, cynicism remains. Thousands more doubt the strategies offered can even reduce power prices, let alone affordably. Emerging technologies such as carbon capture provide an opportunity to shift toward low or zero-emission alternatives, industry experts underscore. They come with their own challenges too. Dr. Wijesooriya pointed out that it’s much costlier to capture emissions after the fact than it is to stop them from being emitted initially.
“We want to have a complete reset and go back to an approach where the market determines how we will generate our electricity.”
Opposition climate spokesperson Sussan Ley has committed her party to matching other countries’ emission reductions. This commitment is made all the more confusing because the Liberals have backtracked from their previous commitment to achieve net-zero emissions by 2050. Bran Black, the new head of the Business Council of Australia, talks up the importance of having a plan for getting to net zero. This clarity will offer much-needed investment certainty across the energy sector.
As Australia looks ahead on the energy front, the transition to renewable energy is not just a fact — it’s picking up speed. Almost every new dollar of investment in grid-scale power generation has gone to renewables starting in 2012. With this trend of accelerating demand for low-cost clean energy, what role do we see for traditional energy sources such as coal and gas?
Future of Renewable Energy
Dr. Wijesooriya highlighted the reality that major energy investors are increasingly committed to net-zero goals and phase-out plans for fossil fuels. She stated,
Investment dynamics are changing. Faced with an influx of public demand and cash as renewables become more lucrative, she noted that resources will follow suit.
“If you want to keep below the [climate] tipping points we really need to stop burning fossil fuels. That’s a fact.”
The transition toward a cleaner energy future is not without challenges. As technology shifts energy production and consumption, the regulatory environment needs to change, too, accommodating innovation while maintaining a reliable and resilient energy supply.
“When other resources become more lucrative to invest, the prices become less; people will shift into other markets … a lot of these investments are coming from large investment funds and they are global funds.”
The transition toward a cleaner energy future is not without its challenges. The regulatory environment must adapt to support new technologies while ensuring reliability in energy supply.
